Value Creation Principles

PREFACE AND OVERVIEW

I strongly believe that a firm's long-term performance is a direct result of its knowledge-building proficiency. That belief is the result of my work in two research areas that normally are not connected—finance and knowledge building. First, by way of background, my career in finance began with the startup of the boutique research firm Callard Madden & Associates in 1969. Our primary mission was to understand levels and changes in stock prices worldwide and provide practical insights to enable portfolio managers to make better investment decisions. We devoted considerable effort analyzing management decision-making in the context of a firm's long-term financial performance quantified as life-cycle track records. Over many years I have been fortunate to work with talented colleagues at Callard Madden and later at HOLT Value Associates. Our research addressed a never-ending stream of problems in connecting a firm's accounting-based performance to its market valuation.

While this finance work was progressing, I got hooked on a second research area dealing with how we know what we think we know, which remains my ongoing intellectual passion.¹ The more I learned about the knowledge-building process, the clearer it became that knowledge building and value creation are opposite sides of the same coin. The more I analyzed management tasks such as strategy, innovation, employee engagement, development of new capabilities, etc., the more I realized that the root ...